Sunday, November 11, 2012

Apple just published a joint statement with HTC announcing the settlement of their Android patent dispute more than 32 months after it started. This is the third significant smartphone patent settlement since June 2011. Previously, Apple settled with Nokia, and Microsoft settled with Barnes & Noble. Apple has yet to settle with wholly-owned Google subsidiary Motorola Mobility and its main rival among device makers, Samsung.

Google officials including former CEO and now-chairman Eric Schmidt have repeatedly denied that Android has a patent infringement problem that needs to be solved through royalty-bearing license deals. But Google's rhetoric is out of touch with reality and inconsistent with the path chosen by its device maker partners. Google's OEMs definitely realize that they must approach the problem constructively and take care of themselves rather than trust Google on this. If Google's strategy to settle all Android patent issues with Motorola's patents had worked out, there would have been a completely different kind of announcement, relating to Android at large and not only to HTC.

TAIPEI, Taiwan and CUPERTINO, California--November 10, 2012--HTC and Apple® have reached a global settlement that includes the dismissal of all current lawsuits and a ten-year license agreement. The license extends to current and future patents held by both parties. The terms of the settlement are confidential.

'HTC is pleased to have resolved its dispute with Apple, so HTC can focus on innovation instead of litigation,' said Peter Chou, CEO of HTC.

'We are glad to have reached a settlement with HTC,' said Tim Cook, CEO of Apple. 'We will continue to stay laser focused on product innovation.'

If litigation is the question, licensing is, once again, the answer.

The settlement is surprising and unsurprising at the same time. The timing wasn't expected since neither party had massive leverage over the other, though the upcoming preliminary ITC ruling I mentioned could have significantly strengthened Apple's position. HTC (including its entire corporate group including S3 Graphics and Via Technologies) had not enforced even any patents against Apple, and Apple was only enforcing a single-patent U.S. import ban, not because its case was weak but because most of its claims had not even come to judgment after al of this time. But it makes a whole lot of sense that Apple would settle with HTC, and that HTC would accept the terms Apple has imposed (which were not disclosed but are likely somewhat onerous), prior to other Apple-Android settlements. Both companies simply have other priorities to focus on. For Apple, the competitive challenge it faces from Samsung and from Google's plan to use Motorola Mobility's patents to reach a point of mutually assured destruction are far bigger issues. If Apple wanted to be embroiled in litigation with a third Android device maker, HTC would no longer be the choice at this stage -- Amazon, for example, would be a higher priority. And while HTC didn't have to fear much from Apple's litigation in the nearest term, it probably knew that it couldn't win this fight in the long run, and it now needs to focus on its business. It recently lost market share and reported disappointing financial results.

There will now, and for some more time, be lots of speculation over the royalty HTC agreed to pay Apple. While the announcement doesn't specify the terms of the deal, there's no question that Apple wouldn't give HTC a free ride. Apple could have afforded to carry on with its litigation and wouldn't have let HTC off the hook unless it was satisfied that the deal addressed its strategic needs.

An even more important question than the royalty rate is the exact scope. The statement says that "[t]he license extends to current and future patents held by both parties". Note that this sentence does not contain the word "all". The absence of "all" means that the license relates to at least some, and presumably most, of their current and future patents, but there's no sign of a 100% comprehensive cross-license. Yesterday I quoted from an Apple post-trial filing in its first Samsung lawsuit a passage that clarifies that Apple's license deals with direct competitors do not relate to the totality of Apple's multi-touch patent portfolio. For example, Apple told the court that only one out of the three multitouch patents it asserted against Samsung at the summer trial was licensed to Nokia. Considering that Nokia has a far stronger patent portfolio than HTC, it's hard to imagine that HTC would get a sweeter, more comprehensive deal unless it offered Apple an unusually high royalty. Apple knows that any license deal it strikes will, at least potentially, impair its ability to obtain injunctive relief in the United States over the patents covered by such deals. In any future situation in which Apple seeks injunctive relief against an Android device maker, the Apple-HTC license agreement will have to be shown to the court and the parties' lawyers, and other adversaries will hold it against Apple, claiming that Apple's willingness to sell a license to HTC covering a given patent means that it can be compensated with money for the continued infringement of such a patent. For Samsung this Apple-HTC deal probably comes too late to leverage it at the December 6 hearing in formal terms.

Tactical considerations aside, congratulations to Apple and HTC on a deal that is a much better way forward than neverending lawsuits. Google should finally recognize that Android devices need patent licenses, that Android is not free no matter how often Google says so, and that one Android device maker after the other will seek licensing arrangements with Apple, Microsoft, Nokia and other significant patent holders.

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About Me

Florian Mueller is a former award-winning intellectual property activist with 25 years of software industry expertise spanning across different market segments (games, education, productivity and infrastructure software), diverse business models and a variety of technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof.) He is now developing a game app for smartphones and tablet computers.